Q: I have always paid my mortgage on time; I’ve never been delinquent in a payment, but it’s getting to be too much. Will my lender consider a short sale and how badly will this affect my credit?

A: Your question is difficult to answer with the limited facts provided. What we know is that every case is unique and more information is needed to thoroughly address your situation. This being said, let me try to help.

Once you have decided to sell your home you will select a Realtor® and begin the listing process. The marketplace will decide what price you will get for your home. In view of the recent market drop, it may be that the price offered for your home will be less than what you owe on your loan, i.e., you will be “short.” Unless you are able and choose to make up the difference at settlement, the lender will need to approve of the transaction in order for the sale to close.

The question is, “what are the lender’s requirements for short sales.” Each lender has developed their own approval procedures and they vary greatly. All of them will require you to document your situation by providing a “hardship letter” along with additional information recording your financial background. Beyond that is dependent to specific situations and I suggest consulting an attorney and tax adviser before moving forward with any decision.

With regard to credit implications, generally speaking, short selling property is preferable to alternatives, such as foreclosure or “deed-in-lieu of foreclosure”. Any of these options will affect your rating and score, yet you will likely be able to repair the damage more quickly after a short sale. There are many variables that go into this element, such as your current credit rating, so I recommend taking your specific situation to a finance consultant to advise you further.

After you have been through this process it is possible that the lender will accept a short sale on loans that are not delinquent. We can put together a file in a couple of days and submit it for approval. Remember there is no charge for this and discussing a situation is confidential. The best way to know if your lender will accept your request is to file for approval on a current loan.

Here is an article in MSN Money covering this exact topic. Let me know if you want to sit down and discuss this further. Use a short sale to escape foreclosure.